On November 9, Mr. Najib Razak, the Prime Minister and Finance Minister, announced at the Multimedia Super Corridor implementation council meeting that Malaysia was aiming for 9 per cent average annual GDP growth rate until 2020. Realising later that the numbers were absurd, the government went into damage control mode. Immediately, the local media edited the premier’s statement to 6 per cent. The next day, the Minister in the Prime Minister’s Department, in charge of the Economic Planning Unit, the government’s powerful pinnacle agency on economic matters, noted that Malaysia was capable of achieving 5.4 per cent GDP growth rates annually over the next ten years to achieve the objective of becoming a high income economy by 2020. On November 11, in the Lower House (Dewan Rakyat), the Deputy Finance Minister stated that Malaysia is expected to recover from the current recession and was projected to grow at between two to three per cent in 2010. Such is the uncertainty of Malaysia’s economic future.

Malaysia’s economic performance has never averaged 9 per cent over the course of a decade, even in the best of times, and has been on the downtrend since the East Asian Financial Crisis of 1997/98. Average growth was around 6.7 per cent in the 60s; 7.7 per cent in the 70s; 5.9 per cent in the 80s; 7.3 per cent in 90s and 5.2 per cent for the period 2000 – 2006 (Yusuf & Nabeshima, 2009). It is therefore unrealistic given the current global economic situation and, more importantly, Malaysia’s weakening economic fundamentals that it would achieve even 5 per cent GDP growth. The Economist Intelligence Unit (Sept 15, 2009) projects that Malaysia’s GDP is expected to grow at an annual average of 4.6 per cent in 2011-2020. The World Bank’s most recent assessment for Malaysia, which was more hopeful, notes that the Malaysian economy is projected to grow at 4.1 per cent in 2010. In the medium term (2011-2012) growth is projected at around 6 per cent conditional on the country undertaking structural reforms. Herein lies Malaysia’s challenge.

Since 1991, Vision 2020 – Mahathir’s vision to transform Malaysia into a developed economy – has been Malaysia’s long term objective. There is consensus that his target will not be met as the required structural reforms were not taken. Malaysia is still a highly protected economy – especially in the services and resources sectors with a perverse economic model that benefits a particular class of people within the ruling political party. This has severely curtailed efficiency and dampened economic growth.

Najib Razak was forced to introduce a new vision – to move Malaysia into the category of high income economies – to maintain political legitimacy for the ruling party. To achieve this target, Malaysia would need to double its current per capita income of US7, 990 to US15, 000 by 2020. This would require restructuring the Malaysian economy; a job that would naturally impact on the Malaysian political and social situation. Najib himself has admitted that this is a Herculean task. This may explain why his administration has not been able to provide a policy document or a coherent argument on what the required structural adjustments are and how they will be implemented. Najib has so far made ad hoc announcements of liberalisation measures: some genuine, others smoke-screens and some even overturned in the face of political pressure.

Structural adjustments will involve the dislocation of certain groups, industries or sectors. The welfare of some people will definitely be affected. However, if the nation benefits as a whole, the groups that are dislocated will be compensated and the nation will be better off as a whole. This is the central problem in Najib’s efforts to secure its economic future by improving competitiveness through liberalisation – an inability to define the “national interest”. Over the years, the increasing strength of the United Malay National Organisation (UMNO) had defined the “national interest” as ensuring the welfare of the community aligned to the ruling party. They are predominantly but not exclusively Malay elites (UMNOputras) who have benefited tremendously from affirmative action policies. While the policy has been applauded in general for maintaining stability, it has clearly come at the expense of the nation as a whole.

For Malaysia to become a high income economy, the World Bank’s recommendations were that the Malaysian economy specialise further, improve workforce skills, make growth more inclusive, and bolster public finance. This obviously requires that “national interest” be defined broadly – to include all Malaysians and reverse policies that benefit a select few. Therefore, Malaysia’s economic future ultimately lies in Najib’s ability to put the interest of Malaysians ahead of the supporters of his political party or for Malaysians to vote in an alternative Prime Minister who would do just that.

Greg Lopez is a postgraduate student at the Crawford School of Economics and Government at the Australian National University.

7 Comments

I agree with your perspective on economic development issue, however, an alternative Prime Minister, in my opinion, would be decided on the foreign policy stance though. I would like to explain my point by giving few examples. In the case of Japan, LDP Party was in power for over 50 years and lost the power because of its offensive foreign policy ambition. Or the opposite example, in the case of Aung San Suu Kyi, even Obama couldn’t help her. Foreign policy is directly correlated with the country’s national security, which made it hard to rock the boat when others have issue with the Malaysian alternative Prime Minister foreign policy alliance. Unless something on that issue be clear out, I think the case will be like Aung San Suu Kyi, meaning no possibility.

Foreign policy is always a critical factor in determining who gets elected. We know the U.S. ability to depose democratically elected governments or install dubious leaders as long as they “support” U.S. views.

In Malaysia, despite the anti-Western rhetoric that come from the ruling party – best exemplified by Mahathir – Malaysia had always tacitly been a supporter of the U.S. Most developing countries do not have an option but to support the U.S. To Malaysia’s credit – it has managed to maintain a semblance of neutrality. The current opposition leader, Anwar Ibrahim, in fact is much loved by the West for his “more liberal” stance than the current ruling elite.

Therefore, Anwar Ibrahim has all the credential to be Malaysia’s new leader – if only Malaysia was as democratic as Japan or Australia.

A more detailed account of Malaysia’s foreign policy is available here.

The NEP may have benefitted certain individuals immensely, but the problem, in my opinion, is that the policies benefit a favoured majority, at the expense of an unwanted minority. These racist policies will not be put aside so easily when the ruling party’s mouthpiece have recently described the bloody May 13 race riots as a “sacred day”.

A high income economy requires a world-class education system, but Malaysia has a rubbish, highly politicised education system. How else can a system that churns out thousands of straight-A students have so many unemployable university graduates?

I foresee a continuing decline in Malaysia’s fortune in the decades to come. Racist attitudes, where “kulit-fication” trumps merit, entrenched by the Birio Tatanegara will take something extraordinary to change. And I don’t see where that change is going to come from. Do you?

“…In its report on the 2010 Annual Article IV Consultations with Malaysia, the IMF said that there is “a stark choice for Malaysians and their political leadership, a choice between muddling through in a business-as-usual mode – or going for an historic transformation of the economy”. The report also says that “rolling back affirmative action” and improving human capital are “necessary to revive the business climate and double Malaysia’s per capita income by 2020.”

For its part, the World Bank has said in their report, “Until solid implementation of reforms is seen, there is unlikely to be a groundswell of positive sentiment of foreign investors towards Malaysia.

Malaysia, US, Australia – still convinced that Barisan Nasiaonal and Najib is your best bet?